How Hut 8 can hold onto its bitcoin in a downturn

One Canadian data center operation, Hut 8, has been very clear that it's not selling its bitcoin stash in this very difficult market.

Why it matters: Going long bitcoin, it turns out, doesn't have to mean going all in on bitcoin. The lesson of this downturn turns out to be an old one: multiple cash flows are a good idea.

• "The last time we sold was I think early January 2021. We sold a little bit," Sue Ennis, vice president of corporate development told Axios in a phone interview. "We don't want to be selling at these price levels."

By the numbers: Hut 8 holds 7406 BTC (just north of $150 million worth at current prices), according to their latest production update.

• It's bringing in about 10 BTC per day (approximately $200,000). Core Scientific brings in 37 per day, but it also just sold all its bitcoin cheap.

What they're saying: "Focusing on revenue diversification is a huge part of our strategy and also having revenue that's uncorrelated to the digital currency space," Ennis said.

• Hut 8 spent $30 million to buy a data center that can do graphics processing, machine learning — basically all the buzzy new cloud things.
• That generates something like $1.6 million a month for them in steady revenue that has nothing to do with the whims of token land.
• And yet, if web3 takes off, it's the tech stack Hut 8 will need to show leadership there as well.

Ennis says they are targeting 15 to 18% growth in that business this year, which is good overall but also gives them a way to weather crypto downturns without unloading bitcoin at clearance prices.

Situational awareness: Bitcoin difficulty is dropping, which indicates that miners are powering down. Lower difficulty improves the returns for operations like Hut 8.

• Ennis says the drop can partly be explained by old hardware that's no longer worth running. "Apparently about 25% of the total network hash rate was being run on S9s, and S9s are among the oldest miners out there," Ennis said.
• Plus, Texas is in a heat wave, so many of their competitors shutting down to support local grids there.

Red alert: Hut 8 has a view into the market much deeper than the average person. Looking every day at prices for miners and used miners, they started to get a warning sign that trouble was coming.

• "Equipment that we had picked up in the previous bear market for $20 to $30 a terahash, we saw it start trading for $80 to $90 a terahash," Ennis said.
• Hut 8 backed away from capital expenditures at that point, but all indications are that many others didn't.
• "We do like the prices where they're at now," Ennis said.

Zooming out: Founded in 2017, Hut 8 is a publicly traded miner that also provides other data processing services. It's name is a reference to the World War II codebreaking station once led by Alan Turing.

Editor's note: This story has been corrected to show Hut 8's bitcoin total holdings are 7406, not 7408.